Shares rise on guarded stimulus hopes from ECB, Fed

TOKYO (Reuters) – Asian shares rose on Tuesday on hopes for further stimulus from the European Central Bank and the U.S. Federal Reserve, both of which hold policy meetings this week, but skepticism about the long-term effectiveness of any ECB actions capped the euro.

European stocks were set for modest gains, with a 0.3 percent rise in U.S. stock futures signaling a firm start on Wall Street. Financial spreadbetters called the main indexes in London (.FTSE), Paris (.FHCI) and Frankfurt (.GDAXI) to open as much as 0.2 percent higher. (.EU) (.L) (.N)

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.5 percent to hit its highest level since May 11 and was set for a monthly gain of 3.7 percent, slightly ahead of June’s 3.5 percent rise.

Korean stocks (.KS11) led the region on Tuesday, gaining 2.3 percent.

“Risk appetites have seen a dramatic improvement over the last few sessions and the return of foreign buying is underpinning preferred stocks, a mix of large-caps that are lifting the market as a whole,” said Cho Sung-joon, an analyst at South Korea’s NH Securities.

The impact of the three-year euro debt crisis on Asia was evident on Tuesday, however, with Japan’s Manufacturing Purchasing Managers Index (PMI) falling at its fastest pace since last year’s earthquake and tsunami, as demand for Japanese goods slows in Europe and China.

Market sentiment has been underpinned by speculation the ECB, at a meeting on Thursday, may resume its bond buying program to force down rising Spanish and Italian borrowing costs, but German opposition has heightened uncertainty.

The Fed has also come under greater pressure to support flagging growth, but many economists do not expect any further easing until September. The Fed starts a two-day policy meeting on Tuesday, ahead of a key nonfarm payrolls report due on Friday.

“There is a bit of positive sentiment supporting the market. The optimism stems from the upcoming central bank meetings and local data is helping too,” said Stan Shamu, market strategist at IG Markets, referring to Australia’s smaller-than-expected decline in building approvals in June.

Japan’s Nikkei stock average (.N225) rose 1 percent.(.T)

The euro edged up 0.2 percent to $1.2285,, still below a three-week high of $1.2390 touched on Friday but well above a two-year low around $1.2042 reached last week. The euro was also up 0.2 percent against the yen at 95.95.

The Australian dollar hit a four-month high against the U.S. dollar around $1.0537 on Tuesday and an all-time peak versus the euro around A$1.1646 in offshore trade, as speculation of monetary stimulus spurred investor appetite for high-yielding currency.

But caution remained about the effect of any measures from the ECB, given doubts that central bank action will be sufficient to resolve the euro zone’s fiscal woes.

“Even if the ECB resumes its bond buying program, the rise in the euro will likely just be met with selling,” said Hideki Amikura, forex manager at Nomura Trust Bank, noting that the euro would at best rise to around 98 yen, for example.

DOUBTS REMAIN

Brent crude held above $106 per barrel but was capped by caution among investors about the effect of any fresh stimulus measures coming from the ECB or the Fed. (O/R)

Copper added 0.3 percent to $7,569.75 a tonne, supported by stimulus hopes, a weaker dollar and gains in riskier assets such as stocks.

Dominic Schnider, an analyst at UBS Wealth Management in Singapore, expected gold prices to fall to as low as $1,520 an ounce in the next three months, in the absence of more bond buying by the Fed which would increase gold’s allure as in inflation hedge.

India’s central bank left interest rates unchanged for the second time since June, in line with expectations, while cutting its growth forecast and lifting its inflation outlook as economic conditions deteriorate.

Grain markets, which had been supported by supply worries from the worst U.S. drought in a half century, will likely see soybeans post their biggest monthly gain since June 2008 and corn its biggest monthly rise in over five years.

Asian credit markets held steady, after the spread on the iTraxx Asia ex-Japan investment-grade index fell to its lowest since early April on Monday in thin trading volumes.

(Additional reporting by Narayanan Somasundaram in Sydney, Rujun Shen in Singapore and Joonhee Yu in Seoul; Editing by Eric Meijer and Richard Pullin)